Method for estimating flows between economic entities

ABSTRACT

In economic networks, it is not currently possible to observe all flows between entities. Only a portion of relationships between firms is known publicly, and only a portion of those relationships is assigned values through reporting requirements by the regulating public institutions. Therefore, obtaining a plurality of documents that describe companies and their known connections through public sources will necessarily result in an incomplete matrix of customer-supplier relationships containing some mixture of known relationships with known values, known relationships with unknown values, and unknown relationships with unknown values. A method and system is presented to obtain a best estimate of all unknown values given the known information in the network, including an amount that is assigned to unknown entities to be discovered later.

RELATED APPLICATIONS

This application is a Continuation of U.S. patent application Ser. No.15/863,702, filed Sep. 19, 2019, which is a Continuation of U.S. patentapplication Ser. No. 14/746,698, filed Jun. 22, 2015, which is aContinuation of U.S. patent application Ser. No. 13/299,168, filed Nov.17, 2011, now U.S. Pat. No. 9,092,821; which claims the benefit ofpriority to a Provisional U.S. Application Ser. No. 61/549,592, filedOct. 20, 2011; all of the aforementioned priority applications beinghereby incorporated by reference in their entirety.

FIELD OF THE INVENTION

An embodiment of the present invention relates generally to techniquesused to statistically estimate unknown or unobserved data betweenentities for a given point in time, and more specifically relates to amethod for generating estimates of flows between nodes in an economicnetwork as discovered by a plurality of sources.

BACKGROUND OF THE INVENTION

An embodiment of the present invention provides a method for generatingestimates of flows between nodes in an economic network as discovered bya plurality of public and private sources (i.e., United States Securityand Exchange Commission (SEC) documents and filings, press releases,company presentations, websites, interviews, analyst estimates, etc. andtheir foreign equivalents), seeking to specify a value over a specifictimeframe for the interaction between each pair of economic entities.These entities can be interpreted to be general actors in a network,whether that is companies, firms, divisions, persons, sectors, etc. aslong as reasonably and functionally equivalent units are used for eachentity. Similarly, the flows between entities can be interpreted asgeneral interactions between entities, whether that is goods, services,monies, information, economic traffic, dollars, euros, etc. as long asthe unit chosen provides a meaningful measure of relative comparison.While the present disclosure is focused on financial relationshipsbetween global companies, the present invention can take many forms andcan be configured to apply to a wide range of situations and to a widerange of applicable entities.

Due to the private nature of many economic activities and limited publicrecord requirements, full access to customer, supplier, debtor,creditor, partner, distributor, etc. agreements is not generallypossible. For example, in the United States, the SEC currently onlyrequires companies to disclose any relationships that comprise more than10% of their revenue in a given reporting period. This places an analystin the position of having summary statistics from the network with onlya partial view into the network's details and the relative magnitude ofan entity's interaction with its neighbors.

However, most of the network analytics that would be useful inestablishing the importance of an entity require a completecharacterization of the internal network, meaning that each relationshipshould have a value assigned to it. This is true for all measures ofadvanced analysis such as centrality measurements, includingeigenvector, closeness, betweenness, weighted degree, etc. Only a verysmall subset of network statistics can be completed with binaryrelationship information, and those would be largely static since binaryeconomic relationships do not tend to change on a daily or monthlybasis.

SUMMARY OF THE INVENTION

An embodiment of the present invention provides a method for estimatingflows between entities in an economic network in order to complete ormore fully populate and characterize the network, while only havingaccess to limited information about the relationships between theentities.

BRIEF DESCRIPTION OF THE DRAWINGS

The organization and manner of the structure and operation of anembodiment of the present invention may best be understood by referenceto the following description, taken in connection with the accompanyingdrawings, wherein:

FIG. 1 illustrates a table, specifically an example list ofcustomer-supplier relationships with partial flow information;

FIG. 2 illustrates an initial matrix showing known and unknown data;

FIG. 3 illustrates an intermediate matrix after seed estimates butbefore convergence;

FIG. 4 illustrates a final matrix with all cleanup operations complete;

FIG. 5 illustrates a simple representative diagram of an economicnetwork;

FIG. 6 illustrates a simple matrix corresponding to the simple diagramshown in FIG. 5; and

FIG. 7 illustrates a conceptual flowchart of a method that is consistentwith an embodiment of the present invention.

DESCRIPTION

While the invention may be embodied in different forms, there are shownin the drawings, and herein will be described in detail, specificembodiments of the invention. The present disclosure is to be consideredan example of the principles of the invention, and is not intended tolimit the invention to that which is illustrated and described herein.

As discussed above, typically not all the economic data relating toentities is known or even obtainable. For example, in the United States,the SEC currently only requires companies to disclose any relationshipsthat comprise more than 10% of their revenue in a given reportingperiod, although additional information is often available from otherpublic sources or voluntary disclosures made by the companies. Thepresent invention provides an estimation procedure that fills in missinginformation for unknown values of known relationships, unknownrelationships, and unknown entities so that the economic network can bemapped, measured, and analyzed. An embodiment of the present inventionprovides a method for estimating flows between entities in an economicnetwork in order to complete or more fully populate the network, whileonly having access to limited information about the relationshipsbetween the entities, such as marginal row and column totals and partialinformation about the interior relationships. The typical underlyingdata for this process is a composite of public financial sources,covering reported revenue and cost accounting totals, supplier revenuepercentages, and industry classifications. While the present method wasspecifically developed for use in estimating economic activity betweencompanies, the same techniques would be applicable and meaningful forany general category of economic entities as long as the resolution andmeasurement is consistent across the network participants. By estimatingvalues to characterize the complete internal matrix, more usefulanalytics are enabled and more complex calculations can be performed.These values will then reflect the fluidity of the network as it changesin response to economic activity that affects revenue, cost, or anyother measure of relative interaction between entities, including theoptional incorporation of current market valuations or equity pricemovements.

The estimation process is valid because economic networks can bedescribed by the dynamics of discrete choice models in which thecustomer and supplier simultaneously choose to interact with each other.Although the details of each decision-making process remain unknown dueto data and access limitations, it can be assumed that the baseprocesses follow some version of a multinomial distribution (and likelya multinomial logit model) because the assumption of independence toirrelevant alternatives (IIA) holds, and the assumption regardingindependent error distributions (IID) is likely to hold if moreinformation were able to be gathered. Furthermore, substantial work hasbeen done using multinomial logit models to explain individual consumerchoice, so it is logical to assume that the decision process performedby the decision-makers at the corporate level should behave similarly asa first approximation. This assumption allows use of the probabilisticinversion procedures (such as the iterative proportional fitting (IPF)algorithm, the parameter fitting for uncertain models (PARFUM)algorithm, or similar) as the maximum likelihood estimator (MLE) for theunderlying log-linear model without having to derive the choice modelitself. Additional models can be used to converge the estimates, such aslinear (or non-linear) programming with constraints or theexpectation-maximization (EM) algorithm, but they will not guarantee amaximum likelihood estimate as an output. This leaves the probabilisticinversion models as the superior choice. For brevity, only atwo-dimensional iterative proportional fitting procedure will bediscussed in detail, although it is a trivial exercise to extend the IPFmethod to higher dimensions or replace IPF with PARFUM or anothersimilar technique that also guarantees the MLE outcome.

In spite of its guarantee as a maximum likelihood estimate, the base IPFprocess as described in the literature cannot be applied without somesignificant modifications due to the limited data available from publicsources. Known relationships with known values must be preserved byfixing their values, known relationships with unknown values must haveseed estimates calculated, and unknown relationships with unknown valuesmust be handled by small positive contributions that will subsequentlybe aggregated and assigned away after convergence. In addition, a dummyentity must be created to simultaneously play the role of the consumer &labor supply, a profit balancer for the companies, and all unknownentities. With these or similar components in place, the IPF willprocess converge stably in all cases and provide a base economic matrixfor use in analytic calculations.

An embodiment of the present invention provides that the estimationprocedure begins by collecting data from a plurality of public andprivate sources (e.g., SEC 10-K's, 10-Q's, press releases, companypresentations, websites, interviews, analyst estimates, etc.) and theirequivalents in order to build a starting network of known relationshipsbetween entities, some of which contain known values reflecting therelative amount of value transferred in the relationship. Theserelationships are stored in a database that minimally contains thesource entity, destination entity, start date, end date, relationshiptype, and value (if known) for the interaction, creating a table thatenables the known information about the network on any day to bequeried. The data that is collected can comprise various types of data,such as but not limited to: data which tends to indicate qualified andunqualified relationships between entities, financial statements,accounting or industry types, financials by division, geography, market,product, or channel, and a variety of industry specific data.

Naturally, there is some latitude in the values destined for thenetwork—an analyst may be more concerned with cash flows than revenueand cost, or they may weight the values in order to include additionalinformation or the results of their proprietary analysis. Sampleweightings could adjust the values for risk, volatility, marketperception (multiples or recent price trends), etc. or smooth the valuesover a recent time window. An optimal place to apply any weighting willbe addressed later in the description—especially if negative values areto be considered.

Assuming the present invention is being used in a financial application,preferably revenue is treated as the sum of all incoming monetary flows,and cost is treated as the sum of all outgoing flows. However, care mustbe taken to use the proper accounting category definitions (e.g., COGS,SG&A, Capital Expenditures, R&D, etc.), as they vary by industry, inorder to obtain the correct totals of values leaving and entering theentity. In a more general network, the flows between entities couldrepresent some abstract interaction, such as willingness to help,tendency to argue, friendliness, or cooperation. As long as theseindividual values are measured in a comparable way and matched with anappropriate aggregated total capacity, then the estimation process willnot be affected. However, the estimation may not be valid as a best fitunless the network interactions can be reasonably assumed to follow alog-linear distribution that will converge to a best estimator.

The network information can be stored efficiently in a sparse formatwith each line or database row representing a single one-wayrelationship. A simple example is shown in the table shown in FIG. 1.

As shown, when queried for a specific day, the network returns validrelationships in a sparse matrix format with the suppliers of goods andservices (receiving funds or revenue) on the rows and the customer ofgoods and services (sending funds or cost) on the columns. The interiorof the matrix is populated with the values if known, and placeholders ifnot known. Supporting data in the form of aggregated totals are alsostored as the marginal totals for the matrix in order to be used assummation targets in the iterative process. Most often, these aggregatedtotals are not the sum of the rows and columns using just the knowndata; rather, they represent an independent target to be reached in thefinal estimation. For example, a firm with $1B in revenues may only havea handful of customers identified that comprise $700M in known revenuerelationships. Of the $300M remaining, a portion will need to beallocated to other known relationships, and a portion reserved forunknown relationships or general consumer activity. Ultimately, a finalsolution in two dimensions requires the internal values of the matrix tosum to the column and row totals simultaneously within a specifiedmargin of error or convergence target. Extending the procedure to higherdimensions would simply require the collection of additional marginaltargets (such as revenue and cost by geography or product, etc.) so thatthe iterative probabilistic inversion algorithm will have an appropriateset of targets.

After determining the valid relationships at a specific time, a dummyentity must be created to perform the role of the unknown relationships.In the economic example, the dummy company simultaneously performs theroles of the consumer (as a buyer), the labor market (as a supplier),and any as-yet undiscovered entities. Revenues that do not come fromother companies are allocated to the consumer, and costs that do notflow to another company are allocated to labor. Accounting-relatedcategories like depreciation and amortization are excluded, as they donot represent a meaningful interaction with another entity. The dummyentity also plays a key role in balancing out the revenue and costtotals in the financial example. Since the vast majority of firms willbe reporting some kind of profit, there is an inherent imbalance betweenthe revenue and cost targets in a financial matrix. Ultimately, thesource of this profit is the extraction of natural resources, but themost appropriate fix for analysis of a limited network is to have theconsumer/labor supply provide the balancing flows by spending more thanthey earn.

With regard to the rationale for the approach used, economic networksare difficult to model because they violate many of the basicassumptions about the distribution of transactions that would simplifythe modeling process. For example, telecommunication (or generalcommunication) networks are often modeled using a Poisson distributionthat assumes a known frequency of arrival of new information,independent from previous events in time. This is a reasonableassumption because it is very likely that one phone conversation isindependent of another. Gaussian distributions are also used frequentlyin demographic studies because they accurately describe the naturalvariation in a population given independent samples from the same base.However, using either of these distributions in an economic contextwould require that transactions be independent across time and networkparticipants, and that is not a safe assumption for customer-supplierrelationships. Economic activity is very much predicated on the behaviorof one entity as it relates to another, therefore making many of theassumptions of simple independence unrealistic. For this reason, asimple assumed distribution such as a Poisson typically should not beused as the basis of a likelihood estimator in order to seed the unknownrelationships for the financial embodiment. There may be limited casesin which economic activity (such as customers arriving in a queue) couldbe described by a Poisson or other standard distribution, and thegeneral steps of the estimation process would still apply in using theIPF algorithm to generate a maximum likelihood estimate. However, forthe financial embodiment that covers customer-supplier relationships, amore general approach must be used.

Since the core of economics is choosing if/which product to consume,discrete choice analysis is a good platform upon which to base theanalysis of an economic network. Each customer-supplier relationship isthe result of a choice for that customer to buy from that supplier,simultaneous with the supplier's choice to sell to that customer. Boththe customer and supplier have a specific choice set available to them,and they determine whom to work with based on a variety of attributes,such as price, distance, reliability, time to deliver, design, switchingcosts, etc. and their preference for those attributes. Mathematically,this model expresses the probability of choosing one distinct optionover others as follows:

${P\left( {i❘C_{n}} \right)} = {\frac{U_{in}}{\Sigma_{j \in C_{n}}U_{jn}} = \frac{e^{\beta^{\prime}x_{in}}}{\Sigma_{j \in C_{n}}e^{\beta^{\prime}x_{jn}}}}$where C_(n) is the choice set available to decision maker n, and U isthe utility for a given option. The further developed equation on theright represents a limited case in which the utility is assumed to be alinear combination of parameters and the error terms follow a logisticdistribution (which has slightly fatter tails than normal). Thisequation is the basis for a multinomial logit model.

The main assumption for the discrete choice models to be valid are that(1) the individual decision maker's utilities are independent fromirrelevant alternatives (IIA), and (2) the random components of theutilities (the error terms) are independently and identicallydistributed (IID), often following an assumption of a normal or logitdistribution.

For the IIA assumption, an individual decision-maker needs to beindifferent to the addition of irrelevant choices to the set. Forexample, if a person is given a choice between a car and a bus, theaddition of a skateboard to the choice set should not change theoutcome. In practice, people do not always behave perfectly in this way,but it is a reasonable assumption for an economic network on a largescale. When estimating across the global economy, the vast majority ofother companies are obviously unrelated to a given firm that is makingdecisions about its customers and suppliers. For example, the additionof Titanium Metals to Microsoft's choice set when Microsoft isconsidering a server supplier such as Dell, Hewlett-Packard, or IBM isirrelevant. Therefore, there is no general problem with affirming theIIA assumption for an economic network.

For the IID assumption, the answer is more convoluted. The fourcomponents of randomness are:

Unobserved attributes;

Unobserved preference variations;

Measurement errors and imperfect information; and

Instrumental (or proxy) variables.

From an economic standpoint, little is known about the decision-makingprocess for each customer and supplier, meaning that there is a highlevel of unobserved taste variation. A subset of company preferences isprovided by those companies required to report information to theirgovernment regulator, but the overall patterns of unobservableattributes are arguably similar because most companies simply do notdisclose much. Moreover, many of these unobserved issues would bepresent for the actual decision-makers, as well—not just unobserved tothe modeler. Finally, it is likely that some corrections would need tobe made for highly correlated options (similar to comparing a red busversus a blue bus) in which potential suppliers or customers werelargely indistinguishable to their counterparts (as is true in perfectcompetition for commodities). As a consequence, the practicaldecision-making process is most likely reduced to a subset of distinctoptions that have very large random components from categories 1 and 2,but it would arguably be a mistake to assume that the distribution ofthis randomness would be independent and identical. It is possible thatthe level of randomness and unobserved data is so high that itapproaches a normal distribution through the central limit theorem, butthis is not a strong conclusion. Ultimately, this forces one to mostlikely reject the IID assumption given the limited observable data, butone cannot confidently reject the underlying possibility that amultinomial model is valid were more information to be discovered.

In the end, viewing the economic network through the lens of discretechoice models leads to a conclusion that a multinomial distribution isappropriate for customer-supplier decisions because the IIA assumptionholds, although constructing a usable multinomial logit model would beimpossible due to the violated IID assumption and lack of observabledata. In other words, we surmise that entities choose customers andsuppliers from a choice set based on utilities, but we do not know theexact model because too much is unobservable. Nevertheless, it does seemreasonable that the underlying decision-making process would ultimatelyfit a multinomial logit model if more information about attributes andpreferences were available. Multinomial logit models have been usedextensively in other models of consumer choice, so it is likely that thechoice of customers or suppliers is not dissimilar from other choicesindividual consumers make in an economic context. This conclusion allowsuse of the probabilistic inversion algorithms (e.g., IPF or PARFUM) as amaximum likelihood estimator for log-linear models (of which multinomiallogit models are a subset).

Consequently, the best approach to estimating the unknown values in thenetwork is to provide a reasonable guess as to a local seed value basedon business logic and/or probabilistic group-level relationships, andthen use an iterative proportional fitting procedure that will guaranteethat any converged solution is the maximum likelihood estimator of theobserved data. Ultimately, this assures us that the converged solutionis the best fit given the available data under the assumption of amultinomial distribution (or any other, or more generic, log-linearmodel).

With regard to estimating seed values, the first step in completing theeconomic matrix is to determine a reasonable estimate for a knownrelationship with an unknown value. This can range from using simpleformulas to more complex statistical methods that leverage probabilitiesor dimensions across the network. Although the convergence of theiterative algorithms is typically not sensitive to seed values (anysufficient number of non-zero positive numbers will work), a moreproportionally accurate seed will generally result in a more accuratesolution. Thus, it is useful to include all information that may berelevant for the seed value.

As a simple example, a straightforward way to estimate an unknown valueis to subtract the known values from the target revenue and cost totals(including an estimate of consumer and labor contributions), and evenlyapportion the remaining amount over the unknown values, subject to a 10%revenue threshold (per SEC requirements) or a similar cost threshold(typically assumed to be 5-10%). Therefore, a reasonable seed valueestimate for known connections missing revenues information could be:

$e_{i,{unk}}^{0} = {\max\left( {{\min\left( {\frac{x_{i +} - {c(i)} - {\sum\limits_{k = 1}^{n}\; e_{ik}^{0}}}{n_{unknown}},{10{\% \cdot x_{i +}}}} \right)},0} \right)}$

The above equation evenly spreads the missing revenue amongst the knownconnections with unknown values after accounting for a typical share ofrevenues that comes from consumers and values already allocated, andfinishes by adding a cap of 10% of revenue and a floor of 0%. Theconsumer share is based on the sector average and standard deviation ofthe observed data on supplier shares, with the remainder being allocatedto consumers. A similar equation is used for the cost estimate:

$e_{{unk},j}^{0} = {\max\left( {{\min\left( {\frac{x_{+ j} - {c(j)} - {\sum\limits_{k = 1}^{n}\; e_{kj}^{0}}}{n_{unknown}},{10{\% \cdot x_{+ j}}}} \right)},0} \right)}$

Similarly, this equation spreads the missing cost evenly amongst theknown connections with unknown values, again with a cap of 10% of cost,and includes an estimate of labor costs for each sector based on USBureau of Economic Analysis data that addresses labor content byindustry. Finally, to complete the seed estimation, these two separatevalues for missing revenue and missing cost could be averaged or themaximum could be taken for the seed value.

For both of the above equations, it would be relatively straightforwardto replace the consumer and labor shares with more specific samples ofindividual companies that could be representative examples of theirindustries. This would allow the use of more granular financial data toestimate the portion of each cost and revenue category that is inboundfrom or outbound to outside the firm.

A more complex example of estimating seed values can use aggregatedprobabilities across the network, since it is likely that recentrelationships across groups of companies are likely to hold movingforward for a small time increment. Each network estimate is typicallybeing done to represent a small slice of time, so it is unlikely thatthe base requirements of an industry, such as the proportion of revenuereceived by one industry from another, would move significantly. Rather,these aggregated relationships will reflect the stability of revenue andcost patterns at an industrial level, such as semiconductor firmsselling to telecom providers, or retailers selling to consumers. Thesehigher-level relationships can then be used to narrow down the seedvalue for each given relationship at each time.

The more complicated seed estimate example first reduces the matrix ofknown values to a sector-by-sector matrix by grouping the rows andcolumns by their weighted industrial attributes, then allowing therelationships between sectors to provide a better guide than simpleequal apportionment of unallocated amounts. The primary complication inthis process is that most companies participate in more than one sector,therefore requiring the estimation to cover all sector pairs for eachpair of companies. That would follow these equations for each companypair:

$e_{i,{unk}}^{0} = {\frac{\sum\limits_{k = 1}^{m}{\sum\limits_{l = 1}^{n}\;{w_{sk} \cdot w_{cl} \cdot v_{kl}}}}{\sum\limits_{k = 1}^{m}\;{w_{sk} \cdot v_{k +}}} \cdot x_{i +}}$$e_{{unk},j}^{0} = {\frac{\sum\limits_{k = 1}^{m}{\sum\limits_{l = 1}^{n}\;{w_{sk} \cdot w_{cl} \cdot v_{kl}}}}{\sum\limits_{l = 1}^{n}\;{w_{cl} \cdot v_{+ l}}} \cdot x_{+ j}}$

These equations allocate values to an individual company pair based onthe weighted sector relationships between them. A similar approach couldbe used to incorporate other attributes as well (such as geographies,end markets, products, channels, operating segments, etc.), and thiswould be essentially required if pursuing a higher-dimension iterativeprocedure. Ultimately, sectors are a good initial classification schemebecause they attempt to categorize the activities of a firm, and thattends to line up well with the corresponding customer and suppliers. Onepotential area for improvement is to use multiple sector classificationschemes, or to vary the level of sector granularity for the estimates.In practice, data constraints often require the use of the simplifiedflat allocation when sector information is incomplete or inadequate.

Once values are estimated for the known relationships, an allowance ismade for unknown relationships by assigning every possible interaction asmall token value to ensure their positivity. When the iterativeprocedure is performed, value will accrue into companies for which thereis no recorded relationship. Upon convergence, these values are summedand moved to the consumer/labor category as a catch-all for unknownquantities. Although it is possible that the unknown values could accrueto the correct unknown relationships, it is not guaranteed, and thechance of a false positive is very high. Thus, the best solution is toapply them to the general category for discovery and confirmation later.

Similarly, unknown companies in the economy are implicitly lumped intothe consumer/labor category as an unknown entity. Although allowancescan be made for the activity in unknown relationships of knowncompanies, it remains impossible to estimate any values for (or theexistence of) unknown entities. However, when they are discovered andadded to the database, the estimation procedure will incorporate themfluidly. With regard to converging a matrix with a completed set ofknown and seed values for the matrix, the example of the two-dimensionaliterative proportional fitting procedure is straightforward. With eachiteration and until the convergence threshold is reached, the processfollows these two equations:

${{Step}\mspace{14mu} 1\text{:}\mspace{14mu} e_{ij}^{{2n} - 1}} = \frac{e_{ij} \cdot x_{i +}}{\sum\limits_{k = 1}^{J}\; e_{ik}}$${{Step}\mspace{14mu} 2\text{:}\mspace{14mu} e_{ij}^{2n}} = \frac{e_{ij} \cdot x_{+ j}}{\sum\limits_{k = 1}^{I}\; e_{kj}}$

where x_(i+) represents the marginal row total, x_(+j) is the marginalcolumn total, and e_(ij) is the interior estimate. These two steps leavethe marginal totals of the rows and the columns unchanged whilealternately applying marginal products until the matrix converges.Overall, the iterative proportional fitting process is computationallyfast, stable, and simple. In an economic setting, the requirements forconvergence are few:

Seed values are positive;

Marginal targets are positive; and

Sum of row marginal targets equals sum of column marginal targets.

Since the method places a small positive number in each empty cell toaccount for unknown relationships and uses revenue and cost totals asthe marginal targets, the IPF algorithm will converge in all cases aslong as the consumer/labor entity provides the balancing flows to offsetthe profit of the other entities. The convergence criterion is theabsolute difference between the row and column totals and theirrespective target values. Upon convergence, final checks are performedto ensure that the estimated values do not cross preset reportingrequirement limits, and the excess funds are accrued to theconsumer/labor category as appropriate.

Given the realities of the data set, a few additional steps are taken tomake sure that the converged result reflects the best guess given knownand unknown information. The extra steps basically handle the knownvalues for relationships that were reported to the governmentregulators, which are held fixed in the iterative process.Mathematically, these values are held fixed by setting a known cell tozero, removing that value from the row and column targets, proceedingaccording to the IPF algorithm, and then replacing the known value afterconvergence to the modified targets.

To illustrate the process, a basic starting matrix is shown in FIG. 2.The next step in the estimation process is to prepare the matrix for theiterative proportional fitting algorithm by inserting the seed valuesfor the known relationships without values, inserting the small positivevalue to handle unknown relationships (including self-consumption inthis case), and zeroing the fixed values and reducing the correspondingrevenue and cost target. The intermediate matrix follows, as illustratedin FIG. 3.

Finally, the IPF algorithm can proceed to converge to the modified rowand column targets. After convergence, the fixed values can be restoredand the value accumulated in the unknown relationships can be moved tothe consumer/labor entity. FIG. 4 illustrates a final matrix with allcleanup operations complete. As shown, the consumer and labor totalsdiverge from their targets when the unknown values are migrated over,reflecting the amount of undocumented economic activity. In the exampleillustrated in FIG. 3, 34 units of unknown activity had to be reassignedto the consumer/labor supply.

The final matrix illustrated in FIG. 4 represents the maximum likelihoodestimator for the economic network given the observed data, and it isready to be used for analytics such as centrality measures, eigenvectorcalculations, Markov chains, etc. in either full absolute orprobabilistic form.

FIG. 7 provides a conceptual flowchart of a method which is consistentwith the embodiment of the present invention described hereinabove, andis self-explanatory in light of the above description. As shown in thelast bubble of the flowchart, once the data has been fully processed,visually-perceptible outputs can be generated. More specifically, oncethe matrix has been populated using known values contained in the data,and then subsequently more fully populated using estimations, the finalmatrix is stored in a searchable database. Thereafter, data calls aremakeable to provide one or more visually-perceptible outputs (such as adisplay on a computer screen, a display on a mobile device, or aprintout on paper). The output can take the form of, for example, one ormore sparse matrixes or one or more graphs relating to the data (bothknown and estimated in accordance with the present invention).

As a note, modified techniques have been developed to use iterativeproportional fitting when some of the internal matrix values arenegative, but those have not been covered here because it is simple totreat all economic flows as positive numbers. Moreover, it is notstrictly necessary to handle negative values when seeking to estimate abase matrix that represents the level of interaction between entities.In a static snapshot at a given time, entities are either related insome way (value >0) or they are not (value=0). More complicatedweightings can be applied after the base matrix is estimated, and thiswill have a meaningful effect on any analytics performed on the matrix.Some sample weightings are gross profit percentages, WACC discountrates, or revenue multiples, all of which can be applied to the flows inorder to reflect some measure of quality or predicted growth. Inaddition, custom scenarios or analyst test cases can be run through theapplication of simple weights that represent the desired change.Applying weightings afterwards allows for further differentiation in thematrix, since the flows represent more than just the dollar transferbetween companies and now include some measure of the value added by thereceiving company or risk in the flow received.

An embodiment of the present invention provides a method for estimatingthe remaining internal values on an economic relationship matrix givenpartial advance knowledge of relationships and their strength. Themethod places very few restrictions on its use, since it only requiresthat the general assumptions of any log-linear model be valid and doesnot require the development of a specific model to guarantee that thefinal values are the maximum likelihood estimator. Thus, matrices can beestimated at nearly any level of resolution or scope, resulting in abest-case estimate for analyzing the economic activity underconsideration. Preferably, the algorithm that is employed in connectionwith the present invention is configured to take into account numeroustypes of data, such as but not limited to: qualified and unqualifiedrelationships between entities, financial statements, accounting orindustry types, financials by division, geography, market, product, orchannel, and a variety of industry specific data. Finally, theconvergence process should be a probabilistic inversion procedure (e.g.,iterative proportional fitting (IPF) or parameter fitting for uncertainmodels (PARFUM), or similar) that can guarantee the outcome to be themaximum likelihood estimate given the underlying data.

While embodiments of the present invention have been shown anddescribed, it is envisioned that those skilled in the art may devisevarious modifications of the present invention without departing fromthe spirit and scope of the appended claims.

What is claimed is:
 1. A method implemented on a computer in relation toa database comprising using one or more processors of the computer toperform the steps of: storing on the database, a network map relating toeconomic activity between a plurality of entities; collecting data froma plurality of sources, said data relating to relationships between theplurality of entities, wherein the plurality of sources includes publicinformation about each entity in the plurality of entities; storing thecollected data in the database in a sparse format; analyzing thecollected data to identify (i) known and unknown entities, (ii) knownand unknown relationships between known entities, and (iii) known andunknown economic activities between the known relationships; updatingthe database-stored network map with the known entities, and knownvalues corresponding to the known relationships between the knownentities, wherein the known values are derived from the known economicactivities between the known relationships between the known entities;creating one or more placeholder entities to perform the role ofconsumer, labor market, profit balancer, and any unknown entities in thedatabase-stored network map; estimating unknown relationships andunknown values relating to the data to provide estimations regardingtransactions that never actually occurred and stored in thedatabase-stored network map; updating the database-stored network map byreplacing the unknown values with estimation values; populating one ormore matrices using known values, the known values including estimationvalues generating visually perceptible output based on the updateddatabase-stored network map using the one or more matrices, wherein theoutput includes a graph that represents at least one flow estimationcalculated using collected data indicating relationships and/or economicactivities, both known and unknown, amongst the plurality of entities.